Skoda Auto Volkswagen India’s Rs 12,000 Cr Tax Dispute Resurfaces Amid JSW Deal

India’s JSW Group and Volkswagen Group are moving ahead with discussions for a potential partnership involving the German automaker’s passenger vehicle operations in India. While the two sides have reportedly reached a preliminary understanding, an old Rs 12,000 crore (USD 1.25 billion) customs dispute has now emerged as an important consideration in negotiations.

According to a Bloomberg report, JSW wants Volkswagen to bear any potential liability arising from the pending tax case against Skoda Auto Volkswagen India. The treatment of this liability is reportedly among the unresolved issues that could influence the valuation and financial structure of the proposed transaction.

Rs 12,000 Cr Tax Case Dates Back To 2024

The tax dispute predates the proposed JSW partnership. As reported in November 2024, Indian authorities had issued Skoda Auto Volkswagen India a notice alleging underpayment of customs duties amounting to around Rs 12,000 crore.

The case relates to the manner in which components for certain locally assembled Skoda, Volkswagen and Audi vehicles were imported into India. Authorities alleged that components required to assemble almost complete vehicles were brought into the country through separate shipments and classified as individual parts.

Individual components attracted customs duties of around 5-15%, whereas completely knocked-down (CKD) vehicle kits were subject to substantially higher duties of around 30-35%. Authorities alleged that this arrangement resulted in lower customs duty payments over a period stretching back to 2012. Models mentioned as part of the investigation included Skoda Kodiaq and Superb, Volkswagen Tiguan, Audi A4 and Audi Q5.

Volkswagen has disputed the allegations and maintained that its Indian operations complied with applicable laws and regulations. The company subsequently challenged the tax demand, and the matter remains unresolved.

Why Tax Case Matters For JSW Volkswagen Deal

With JSW now considering an investment in Volkswagen Group’s Indian passenger vehicle operations, the existing tax dispute has taken on greater significance. JSW reportedly wants any financial liability arising from the case to remain with Volkswagen rather than becoming an obligation of the proposed joint venture. Such an arrangement would protect JSW from exposure to a dispute that originated well before its proposed involvement in the business.

The size of the demand makes this particularly relevant to negotiations. A potential Rs 12,000 crore liability could have a significant bearing on how Skoda Auto Volkswagen India’s operations are valued and how financial obligations are divided between the two partners.

The eventual exposure could also differ from the original demand depending on the outcome of the proceedings. Earlier reports had indicated the possibility of additional penalties and interest if the authorities’ case were ultimately upheld. However, the demand continues to be contested by Volkswagen. Neither JSW Group nor Volkswagen had commented on the latest Bloomberg report.

JSW Volkswagen India Partnership

The proposed alliance could represent a significant restructuring of Volkswagen Group’s operations in India. JSW is expected to bring local investment and market expertise, while Volkswagen Group brings its existing manufacturing operations, vehicle platforms, technology and brands.

Greater localisation is expected to be one of the areas of focus if the partnership progresses. The alliance could potentially support future products across internal combustion, hybrid and electric powertrains, while also using India as a manufacturing base for domestic and export markets. The proposed Volkswagen partnership would be separate from JSW’s existing automotive joint venture with China’s SAIC Motor, which operates as JSW MG Motor India.

For Volkswagen, bringing in a local partner could help share future investments as it attempts to increase scale in the Indian passenger vehicle market. For JSW, the deal would significantly expand its automotive presence beyond its existing MG partnership and recently announced Ampstar electric commercial vehicle operations.

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